Kraft Heinz (NASDAQ:KHC) Has Announced A Dividend Of $0.40

The Kraft Heinz Company's (NASDAQ:KHC) investors are due to receive a payment of $0.40 per share on 29th of December. The dividend yield will be 4.6% based on this payment which is still above the industry average.

View our latest analysis for Kraft Heinz

Kraft Heinz's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Kraft Heinz was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 41.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

Kraft Heinz's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was $2.30 in 2015, and the most recent fiscal year payment was $1.60. Doing the maths, this is a decline of about 4.4% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Kraft Heinz's earnings per share has shrunk at 22% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Kraft Heinz's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kraft Heinz's payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Kraft Heinz that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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